Debt 1, brains 0

BEER modified

When the world looks at what Canadians are doing to themselves in terms of housing, heads shake, eyebrows arch and a little ‘WTF?’ is murmured in several languages. Americans, Irish, Spaniards and others are amused that we watched their markets inflate, then blow up, and learned nothing.

The OECD (Oganization for Economic Development and Cooperation) thinks we’re nuts. By their measure, real estate is overvalued here by 30% to 64% when prices are pitted against rents, or the income families receive. The only reasons this can happen are cheap money, government incentives, and a wilful blindness to the consequences of debt. Most poor beavers believe interest rates will never rise in their lifetimes, that house prices (at worst) will stay steady, and real estate is the best possible asset to own.

They thought that way in Florida a decade ago, too. With better weather.

There’s another reason so many today are sure it’s different here. Immigration. While this blog is crawling with envious xenophobes who decry what they think Chinese money has done to prices in Vancouver or Markham, realtors keeping telling folks you’d better buy before some guy with a suitcase and bad haircut beats you to it.

A recent Conference Board study says the OECD is nothing by a bunch of scaremongerers, and real estate in Canada costs a bundle exactly because we’ve a growing portion of the population that was not born here.

So, here’s an argument the HAM-hating houseless and the HAM-loving realtors will relish:

“The foreign-born population can significantly alter the landscape of a country’s housing market. In many instances, immigrants arrive in a new country with some pre-established wealth. If a specific market welcomes a relatively large share of wealthy immigrants, their arrival creates a new source of demand that not only stimulates demand for housing, but can also raise house prices significantly without any changes to personal disposable income per capita. Accordingly, a rising share of the foreign-born population can lead to a higher house price-to-disposable income per capita ratio.”

The Conference Board then argues that Toronto and Vancouver, despite having lower income growth than the rest of the country, have seen a higher bloat in house prices over the last two decades. These places also have lots of foreign-born citizens – 46% in the GTA and 40% in Mouldy City. The Board acknowledges immigrants earn less and an influx of them brings down overall wages, but still suggests houses cost more because of newcomers.

“From the analysis, it appears that markets with higher shares of foreign-born population are associated with higher ratio of average house prices-to-average disposable income per capita, at least for Canada. And since the share of the foreign-born population has been rising continuously in Canada, from 16% in 1981 to 20.6% in 2011, one should therefore expect a steady rise in the house price-to-disposable income per capita ratio. Concluding that Canada’s housing market is over-valued by 30% by simply comparing its current ratio of average house price-to-disposable income per capita to its historical average is thus inappropriate since this ratio tends to increase over time.”

See how much fun numbers are? If immigrants make less, and lots of them live in your town, then house prices aren’t so bad when you measure them against incomes. So, wazza problem?

“In the end, while the Conference Board of Canada does expect modest house price increases in the near future, and even some slight declines in some markets, we stick to our positioning that Canada’s housing market is nowhere near about to correct drastically, as the OECD study seems to suggest.”

John builds and sells houses in mid-town Toronto. “I have never believed this crap,” he says, of the immigrants-fuel-prices argument. “I have never met or sold a house to a recently arrived immigrant that decided to blow his brains out on a house on Glencairn Avenue.  To the best of my knowledge they are also not the ones buying condominiums either, excluding foreign investors that never actually move here.

“Perhaps this argument can be made for areas outside of the GTA for areas like Brampton, Mississauga, Markham, etc. but that does not explain why a SFH in the core is now over $ 1, 000,000.  Those prices are being driven by dumb Caucasian Canadians with no brains and lots of debt.”

And John’s right.

Houses cost too much because people buy them.

In doing so they take on historic levels of debt, shelve retirement saving, suck off all their liquid assets and employ extreme leverage. Without temporarily-cheap rates or the government insurance making bankers careless, houses in Van or 416 wouldn’t cost a mill. And we’d still have immigrants. You might just like them more.

200 comments ↓

#1 JRH on 05.25.14 at 5:05 pm

First ?

#2 Dean Mason on 05.25.14 at 5:17 pm

Most Canadians are clueless when it comes to personal finance and financial literacy.

They don’t think about the massive total property taxes, condo fees if a condo, maintenance and repairs, insurance, mortgage interest costs to a lesser extent for now, CHMC premiums, electricity, heating, water, H.S.T on almost everything over the next 25, 30, 35 years etc.

They just look at the cheap mortgage rates today and don’t factor in these above rising costs, taxes, fees that can be 2, 3, 4 times higher easily in 25, 30, 35 years etc.

Also, all the other cost of living of auto insurance, auto repairs and maintenance, auto expenses of monthly payments, gasoline costs, food, medical etc.

This is not even to mention all the credit card debt, line of credit debt that many think a few thousand there and there is no big deal.

If it was law that they had to give a good estimate of what it would cost to pay off, keep and maintain their house, car purchases then it would open eyes to a lot more people.

Money morons will always be money morons but more people would make better financial decisions which the lenders, governments do not want.

#3 Big Al ( New ) on 05.25.14 at 5:19 pm

Spent some time this memorial weekend with friends in the US and the homes they have put some of To’s garbage housing to shame. Friends in Georgia right on a river just about 5 miles from Jekyll Island in a beautiful home and a dock big enough for their 40′ sailboat and a 20′ runabout just bought less than a year ago for 350k. That doesn’t even get you 600 sq/ft in To let alone all the aminitys this place has. But here’s the kicker the couple they bought from had bought for more than double. Yup can’t happen to us we’re way smarter.

#4 benchwarmers on 05.25.14 at 5:21 pm

FIRST!

#5 Vancity D-Man on 05.25.14 at 5:21 pm

Did you teach Bandit the same trick? lol

#6 Roberto Agnew on 05.25.14 at 5:21 pm

Canada is facing a long deleveraging of housing prices over the next 20 years – any economic event like a credit squeeze or toxic leveraged assets or bubble in oil , tech, for example could trigger a more rapid decline .

Don’t be surprised if it happens – it will – it is just a matter of time. History makes fools of all politicians and pundits.

The current real estate is a result of weak regulation , lack of transparency and leadership – if governments react too slowly and ineffectively we convert loss into a full scale calamity and panic.

Cheap credit needs to stop – asset bubbles are being artificially inflated – we need to stop punishing savers and workers and pull the punch bowl from the spenders

#7 Robbie on 05.25.14 at 5:27 pm

Rent a house…buy a dog. Lot cheaper and more rewarding! :)

#8 Crossbordershopper on 05.25.14 at 5:29 pm

why dont people accept that everything in canada is more expensive and just live with it. the gas prices, car insurance, the hand cream at the store etc etc. houses are just a reflection of that because its the biggest thing people buy. sure, with high leverage and low interest rates. Its a cold country and i am not talking the weather, its actually a safe country, but there are less murders because no one cares about anyone in canada. This apathy leads to uninterest in others. no one kills someone they dont know or care about.

#9 yashar on 05.25.14 at 5:37 pm

If the immigration is causing constant rise in housing demand and cost how could one explain the decline in prices between 2008-2010? Did the immigration stop back then? The fact is when you look at the house prices graph one can interestingly attribute some of sudden price hikes to introduction of Toronto land transfer tax, introduction of HST, scrapping 0 down mortgages with a notice months in advance, scrapping 40 year amortization again with few months notice, same argument goes for 35 and 30 years. Plus emergency interest rates that have only one direction to go. This is how the housing was engineered not by immigration.

#10 Mark on 05.25.14 at 5:43 pm

Sure, the foreign born have an influence. Nobody denies that. But at the end of the day, they’re queued up, just like most other Canadians buying houses, at their local banks, to get CMHC subprime insured mortgages. And most of the M3’s, low-class BMW cars, that they drive, are leased.

The fundamental problem with the people who claim HAM is actually money coming from Asia, is that there has not been any de-leveraging which would be implied by a foreign cash injection into any economy, whether it be housing, stocks, etc. In fact, anecdotal evidence suggests that many Canadians may be, in certain markets, taking out additional credit on their houses and exporting the proceeds of such overseas. Whether it be to buy Arizona real estate, Florida real estate, or even to prop up a failing Chinese factory (lots of those, it seems lately). Remember that it only takes on sale at the margin to send “prices” higher, and only one sale at the margin to bring “prices” lower. Lately, lower, in the GTA, GVR and Calgary, only masked by the changing sales mix.

#11 Mark on 05.25.14 at 5:45 pm

“If the immigration is causing constant rise in housing demand and cost how could one explain the decline in prices between 2008-2010? …”

Bingo! Someone buy this man a donut (but not one of excuses for a donut that passes at Tim Hortons these days!).

Its the same reason why we’ve seen falling prices across most major Canadian centres in the past year in the aftermath of the “F”‘s 2013 Budget tightening at the CMHC. Its all about credit, and in Canada, the availability of subprime CMHC-insured credit.

#12 Mark on 05.25.14 at 5:47 pm

“Cheap credit needs to stop – asset bubbles are being artificially inflated – we need to stop punishing savers and workers and pull the punch bowl from the spenders”

And what’s stopping “savers” and “workers” from taking advantage? Most know how to work a computer, buy bank stock, buy out of favour asset classes that have been suppressed by cheap credit is not difficult. Yes, RE is overpriced, yes a savings account doesn’t pay any interest, but that’s no reason to adopt a defeatist attitude.

#13 KillaBoy49 on 05.25.14 at 5:53 pm

Interest rates aren’t going up any time soon. Demand isn’t going down any time soon. Supply isn’t going up any time soon.

#14 Son of Ponzi on 05.25.14 at 6:00 pm

Richmond has one of the highest property prices in Canada.
And one of the highest child poverty rates.
Reason:
Rich immigrants who buy houses with cash and have no income in Canada.

#15 TurnerNation on 05.25.14 at 6:06 pm

He looks bemused!

The dog, too. — Garth

#16 Son of Ponzi on 05.25.14 at 6:07 pm

#9 yashar on 05.25.14 at 5:37 pm
If the immigration is causing constant rise in housing demand and cost how could one explain the decline in prices between 2008-2010? Did the immigration stop back then?
—————–
In Vancouver prices dropped for about 6 months as credit dried up world wide.
But once China started to print money and flood the markets, the merry go round continued.
The fact is that the Canadian economy is now so dependent on China that wherever China goes, Canada must follow.

You are obsessed. — Garth

#17 triplenet on 05.25.14 at 6:07 pm

This article reminds me to think of the definition of market value – as accepted by the legal profession and the courts.

Don’t forget – it is your legal right to be wrong.

#18 Mark on 05.25.14 at 6:10 pm

“Rich immigrants who buy houses with cash and have no income in Canada.”

Impossible. All Canadians are required to declare their worldwide income, and that would most certainly show up in Richmond income stats. So unless you’re accusing large numbers of Richmond-ites of being tax evaders and criminals, particularly of a certain previous nationality, I would suggest re-visiting your remarks.

#19 Just Sold Vancouver on 05.25.14 at 6:16 pm

New immigrants coming to work in Vancouver likely can’t afford more than the rest of the residents here. However, after looking for a house or townhouse to rent on the westside of Vancouver over the last month the most common scenario was an owner that worked overseas, but had moved his family here.

I guess it’s a good deal to take advantage of the education and social benefits here, while running a business in a jurisdiction where you pay little or no tax, benefit from lax environmental and work safety regulation, and pay extremely low wages. Also, you don’t need to declare your income in Canada if the head of the household doesn’t reside here for most the year – so this isn’t something that would show up in Canadian statistics. Hard to blame people in this scenario, as they’re just trying to do the best for their families – but it does sting if Vancouver is home and you’ll never afford a house.

#20 Old Man on 05.25.14 at 6:18 pm

The caption picture is Mayor Ford’s dog in training to become his new curbside waiter. He opens the car door and dog runs with cash to fetch his master a drink. In this way Rob’s hands are clean as its his dog that needs to go into rehab. Blame the dog for an inappropriate act because he is innocent.

#21 Cecil henry on 05.25.14 at 6:18 pm

DELETED

#22 Dean Mason on 05.25.14 at 6:27 pm

By the way most Canadians don’t understand that by them buying too much real estate and being a debt can cost them future financial investments, liquidity and income.

The equivalent of $916.00 a month more spent on real estate which is $11,000 a year growing at a modest 5.00% annual rate of return in TFSA’s over the next 35 year would be $1,019,049 income tax free.

This is $50,925.45 in annual TFSA income using the same 5.00% annual rate of return.

This is not even taking into account the many real estate expenses, taxes, fees that go up annually.

If you were to take a realistic 3.50% average annual increase then this would cost you in the future, $1,642,219 and $82,110.95 in annual income.

This is assuming that all family members, 3 or more were to maximize their $5,500 annual TFSA contributions taking advantage of income tax free growth.

#23 Son of Ponzi on 05.25.14 at 6:28 pm

Average SFH in Vancouver is about 1.2 million.
CMHC cap is 1 million.
Average household income is 60k.
It just does not add up.

#24 Freedom First on 05.25.14 at 6:28 pm

#2 Dean Mason

I couldn’t have said it better. We’re screwed.

#25 crowdedelevatorfartz on 05.25.14 at 6:30 pm

This weeks Economist Mag. page 71.
Review of a book.
House of Debt: How They (and you) caused the Great Recession.
‘The danger of home ownership debt is that it concentrates the risk on those least able to afford it…….The poorest households generally have the least equity in their homes and are wiped out because of it.

Sounds like what Garth has been saying on this pathetic blog for how many years?

#26 zee on 05.25.14 at 6:34 pm

Hey Garth

If you dont think HAM is a factor then look at Stouffville and compare this to Markharm and Richmond Hill where HAM influence is very strong. Stouffville is only a few km away from these other surrounding cities however the price difference is enormous. Just currently, houses are not selling in Stouffville, there are price drops and inventory is growing however the opposite is happening in Markharm and Richmond Hill. Check it out for yourself, ask a realtor from both cities and see what he says. I did and I am seeing this happening.

#27 miketheengineer on 05.25.14 at 6:37 pm

So how do they do it.

More than one family in one home…4 or 5 people earning 40k….enought to afford 1 million dollar home.

Every body wants cash money…

Guy on the street is having his drive way paved…asked the dudes to fix a spot on his driveway….for a 100 bucks cash, they cut on the bad hunk and install new asphalt, the catch…give me cash…no questions asked…took them a whole hour to do…and then they went and did 4 or 5 more…

Cash is king Garth-o-man…and these new guys and anyone and everyone is trying to get ahead…and they all ask for cash…

Roofers, last year, gave an incredible offer on roofing job…catch…has to be all cash.

mike

#28 Kam on 05.25.14 at 6:42 pm

#9 yashar on 05.25.14 at 5:37 pm
Excellent points .I fully agree with you. It seems that government deliberately declared changes in rules just around spring or summer season so that sales and prices can go up.All these changes helped flippers to make more money .

#29 Yashar on 05.25.14 at 6:50 pm

This may be somewhat off topic but I would like to bring it here.I am thinking if the market is healthy and prices are driven by demand and supply. There must be a good portion of CMHC insure mortgages out there that would no longer be needed to be insured if the properties were to be financed today. Meaning, there is a good chance many of people who bought properties with CMHC insurance 3-5 years ago. They no longer need mortgage insurance. How about the government takes action and releieves tax payers from the liabilities that no longer are needed. This way the banks will have to do their due diligence and qualify their mortgagors who qualified and their income was deligently verified by the bank. this way we will see how much the banks believe in the market and how much of the taxpayers risk they are willing to take?

#30 OttawaMike on 05.25.14 at 6:55 pm

Immigrants are stealing all our Jorbs, women and shelter.

I believe this started with the Fenians in the late 1800s and now HAM has taken the baton in this century.

Interesting how non whites were restricted from immigrating here until the early 60s. Canada is a smug nation of covert racists.

#31 the jaguar on 05.25.14 at 7:07 pm

Garth, not sure I like seeing any dog performing tricks for humans. (dogs are an elevated species above mankind). Suspect this golden retriever is only doing this trick for the reward (food). Golden Retrievers are notorious hamburger hunters. .
It doesn’t really matter where the origins of everyone’s conspiracy theories about real estate come from….

At the end of the day only the really slow witted or those with a financial agenda would advance the argument that home values are realistic. Ask yourselves the serious questions! Should people be paying close to a million dollars for some tired old bungalow and obtaining mortgages for as much as THREE QUARTERS OF A MILLION DOLLARS when their income has not seen the same gains? This isn’t a game. There are consequences.
I owned two homes in the past ten years. Made good money on the sale of both due to the marketplace.
I think I understand the risks and rewards, but not interested in the market now. I am content to hold on and try to prepare for the not too distant future……liquidity will provide some comfort in the days ahead. But nobody should think because they don’t own real estate that it will be easy…

#32 Mark on 05.25.14 at 7:07 pm

“I believe this started with the Fenians in the late 1800s and now HAM has taken the baton in this century. ”

Since we know that “HAM” is mostly recent immigrant Canadians borrowing their brains out on CMHC-insured sub-prime credit, you should be pleased to contemplate the sort of fate that will fall upon those individuals as housing continues to fall and as the risk premium applicable to their subprime loans starts to rise significantly.

#33 Tim Hudak on 05.25.14 at 7:07 pm

WTF is right! No amount of HAM money can sustain the currently level of insanity this long…two houses away from us a new white couple just moved in they paid $1.7M for a newly home on a 38 ft lot with 5% down coz it’s good value they said…WTF coz they will be paying that mortgage well into their 80s!

#34 Mark on 05.25.14 at 7:09 pm

“There must be a good portion of CMHC insure mortgages out there that would no longer be needed to be insured if the properties were to be financed today.”

Perhaps, but as prices continue to decline, how do you know that they won’t be needing the subprime CMHC insurance in the future? It is the lender that makes the decision whether to release CMHC from its obligation, not the borrower (unless the borrower pays the loan off!). No lender is going to voluntarily relinquish a credit enhancement to an otherwise CMHC subprime insured loan.

#35 Cowpoke on 05.25.14 at 7:10 pm

The banks ain’t complaining. They’re [lovin it].

http://us7.campaign-archive1.com/?u=994a273391e6cd95081ecf363&id=15f5eb241d&e=2ce6e54411

#36 Gary on 05.25.14 at 7:16 pm

Chinese are the majority in many neighborhoods in Vancouver and to suggest otherwise is to either ignore what we all see on a daily basis. There is no one I know in Vancouver that doesn’t think rich Asians are driving the market higher and this includes many tradesman that work on these houses the Chinese are buying. Despite the non-sense on this blog, anyone who spent any time in Vancouver would come to the same conclusion.

#37 X on 05.25.14 at 7:16 pm

We will see how over valued the market is when rates rise.

I am sure a politician will use any RE mess to look good (ie responsible) and appoint someone to oversee the RE market then.

#38 Spiltbongwater on 05.25.14 at 7:17 pm

#30 OttawaMike on 05.25.14 at 6:55 pm

I am not too worried about immigrants stealing our women. From my experience the less white women in the dating pool the better.

#39 Mark on 05.25.14 at 7:19 pm

…in other words, its not the government’s choice to make, to “relieve” the taxpayers of the obligation. If the government cancels CMHC insurance policies, this is, in effect, a default on the legal obligations of the Government of Canada. Or put in other words, a “sovereign default”. I can think of nothing that would bring the economy to its knees faster than the Government not respecting the rule of law. Mortgage lending would immediately stop, and the market would revert to all-cash valuations, which, I can assure you, would be pennies on the dollar of today’s current prices.

#40 Gary on 05.25.14 at 7:19 pm

RE#19
That’s because our politicians allow this to happen. Gregor “Paver” Robertson’s biggest campaign contributor was a developer. He is doing his best to pave over every inch of this city, with no commensurate increase in roads, infrastructure, or transit. That’s why it takes 20 minutes to go 4 kilometers in Vancouver even on a Sunday.

#41 Cowpoke on 05.25.14 at 7:19 pm

In a place that is South and East of Vancouver is a real estate rebound.

http://www.miamiherald.com/projects/2014/zipcode/stories/overview/

#42 Son of Ponzi on 05.25.14 at 7:21 pm

Looks like Blinders are Us is having a sale again.

#43 perplexed on 05.25.14 at 7:30 pm

Regarding taxes payed on worldwide income- It may be the law, but not the reality.
“A source said the government is acting based on data that show that, 20 years after arriving in Canada, an immigrant investor has paid about $200,000 less in taxes than a newcomer who came in under the federal skilled worker program, and almost $100,000 less than one who was a live-in caregiver.” (G&M Feb.10,2014)
Must be close to nil considering how well we compensate live-in caregivers.

#44 Millenial-Falcon on 05.25.14 at 7:30 pm

yah the people that bought vancouver sfh in 2008 against all the advice and ranting of the basment dwelling doomers who frequent this blog sure are dumb! you cant call a crash for decade and then say i told u so! even if by some miracle there was a modest correction in Van these “dumb” people will still be way ahead! year after year we come here to blow twenty minutes reading stupid comments from people saying how there brother in laws cousin is a realturd and says “things are so slow its a bloodbath out there” or how some stupid shop on main street canada closed. It doesnt mean f’ck all. stop wishing for a crash so badly….its not gona happen. you can scrap the plans for window bars and underground generator the sky isnt gona fall and you can move outta your moms basement!

#45 Randman on 05.25.14 at 7:34 pm

“Reality is that which, when you stop believing in it, doesn’t go away.”

Philip K. Dick

#46 Pardon? on 05.25.14 at 7:37 pm

Why do you car experts keep saying the BMW M3 is a low class BMW? Their cars with the M preface are the high performance version, like when you see AMG on a Mercedes it comes their “skunk works”. The M series start at $74,000 in Canada and go up from there so if that’s a low class car please don’t park your Rolls Royce or Bently beside my Hyundai. I don’t want it scratched, my Hyundai that is.

#47 T.O. Bubble Boy on 05.25.14 at 7:42 pm

Rents are catching up to house prices in a few areas… for example, check out this uber-skinny semi-detached place for rent at $4250 per month:
http://www.kijiji.ca/v-house-rental/city-of-toronto/24-ranleigh-ave-renovated-rental-yonge-lawrence/593325618

($4250/month is about what you’d see for the mortgage payment on a $900,000 principal @ 3% w/ 25-yr amortization)

#48 Nemesis on 05.25.14 at 7:43 pm

Not for nothing are they called GoldenRetrievers…

The problem is, once they figure that trick out – they’re never happy until they’ve got their own brewery…

http://tinyurl.com/mtp9z3o

And then the real fun starts…

Say, why does my head hurt this afternoon? Probably all those numbers.

Nothing a little spin over to FireLake couldn’t fix, though…

#49 North Yorker on 05.25.14 at 7:50 pm

#26 Zee

It’s definitely happening in Willowdale. It’s all Chinese, Persians, koreans and Russians buying in this area. Canadians who sold their bungalows for 1.5mil here are moving to Glencairn Ave. , Moore Park… Just because you don’t see new immigrants in particular area doesn’t mean they don’t influence overall RE market.

#50 Mark on 05.25.14 at 7:51 pm

“Rents are catching up to house prices in a few areas… for example, check out this uber-skinny semi-detached place for rent at $4250 per month:

Are you kidding? That’s still in excess of 200X monthly rent before all expenses. And those 3% rates are less than half of historic norms.

That house needs to drop by more than half to make it an interesting “investment”.

#51 James on 05.25.14 at 7:53 pm

#12 Mark

You do realize that certain entities (e.g., charities, insurance companies) are restricted in terms of the investment vehicles that they can use, right?

You talk of ‘savers’ being lazy because they don’t invest in other asset classes. Large numbers of corporate entities (with vast amounts of wealth) cannot do so. That is why charities and insurers have been hammered by low rates. Plenty of stories on this in the mainstream press.

#52 James on 05.25.14 at 7:55 pm

#18 Mark

Yes, an awful lot of people are tax evaders. I include in this not only people working in Hong Kong while their families are on the dole in Canada (receiving special subsidies meant for the disadvantaged), but also domestic mechanics and others that do contract work under the table. There is indeed undeclared income aplenty. Only a fool would deny it.

The question for this blog is to what degree it is responsible for real estate prices.

PS: Foreign purchasers do have an impact, but most purchases are by locals. Garth is right.

#53 len on 05.25.14 at 7:57 pm

My question is more general one. When signing a contract for a house, real estate associations are required by law to collect pretty detailed information on the buyer – identity, citizenship status, etc. . Why is it that everyone claims not to know how many properties are sold to non-residents? The provincial governments, but definitely the realestate cartels, know exactly the breakdown of foreign ownership. The information is clearly being collected – how come it is not being released (at least not to us peasants)?

The info goes to the federal agency, FINTRAC, which is concerned with terrorist financing and money laundering, not counting foreigners buying houses. — Garth

#54 Yashar on 05.25.14 at 8:00 pm

Very interesting points Mark. Maybe my idea was too broad. Seems like the whole idea of having tax payer on the hook for mortgage insurance for the term of the mortgage regardless of the property value increases is flawed and imposes unnecessary risk to CMHC. Could this be changed in future?

#55 takla on 05.25.14 at 8:00 pm

Our first home was bought{1984} the average purchaser was a newly married ,late 20’s couple with a annual salary to purchase price ratio of 3 /4 to 1. A decent 3 bedroom home in good kit in the suburbs ran you around 120,000.00 and most blue collar guys I knew were pulling in around 30-35k per yr.Interest rates were way up there north of 12% and it was a grind making payment,but at least the cost of living ,gas /food was a fraction of what it is today.
Most didn’t need a down payment or help from the folks as most folks didn’t have the doe to help,also most families at that time were single income .

Of course times have changed ,costs have skyrocketed and constant inflation has done a number on the consumer.Every homeowner on my street ive talked to is leveraged to the max and struggleing to keep their homes maintained,tax’s/bank payed and have the misconception that their home values will keep riseing into the future to supply them with a nice retirement nest egg.Nearly everone of them have a basement suite/mortgage helper or parents living with them and helping to finace the homes .
Zero interest rate policy is the only thing keeping these greater fools from going under and the prudent savers among us are beginning to hurt as well from ZIRP.
This has evolved into a very dangerous situation…plan accordingly

#56 Mark on 05.25.14 at 8:00 pm

“You do realize that certain entities (e.g., charities, insurance companies) are restricted in terms of the investment vehicles that they can use, right?”

I know this, and this will be the downfall of such organizations at some point. Rising interest rates, for instance, have the tendency to destroy the value of long-term bond portfolios.

Yes, an awful lot of people are tax evaders. I include in this not only people working in Hong Kong while their families are on the dole in Canada (receiving special subsidies meant for the disadvantaged), but also domestic mechanics and others that do contract work under the table.

Sure, and there was under-the-table income back in the 40s, 50s, 60s, 70s, 80s, before we had all of the RE pricing insanity. Weren’t the effective tax rates far higher when Trudeau (the older one) was in power? Still didn’t mean that RE was elevated to ratios like we see today. Likewise, we’ve had “Asian” immigration into Canada since the time of the CPR in the 1860s, but the utter Vancouver/Toronto pricing insanity is a more recent phenomena caused by the widespread expansion of CMHC subprime credit insurance.

#57 Lynn on 05.25.14 at 8:03 pm

I do believe “ham”, I know few Chinese immigrates, they came to Canada few years ago and found a low-mid income jobs, just live as means. But since they own properties in china, suddenly they became rich and cashed out the monies in China and transfer money to canada (not knowing by regular way). Then they can afford a bigger house, of course they bid each other by a bidding war….check out all the new built houses and duplexes, as many as 3 mortgage helper units built downstairs, basically the owner lives upstairs. What a life quality to support a million dollar market!

#58 Snowboid on 05.25.14 at 8:04 pm

#8 Crossbordershopper on 05.25.14 at 5:29 pm…

Not that the rest of your post is any better, but “…no one kills someone they dont know or care about…” is the most ridiculous statement I’ve heard in a long time.

Obviously you have led a sheltered life, if you haven’t heard of:

The Surrey Six, Highway of Tears, Robert Pickton, Clifford Olson, Johnson-Bentley – et cetera, et cetera…and this is BC alone.

#59 Snowboid on 05.25.14 at 8:05 pm

#44 Millenial-Falcon on 05.25.14 at 7:30 pm…

Patience you must have, my young YT-1300 492727ZED, once you start down the dark path, forever will it dominate your destiny, consume you it will.

#60 Mark on 05.25.14 at 8:09 pm

“Zero interest rate policy is the only thing keeping these greater fools from going under and the prudent savers among us are beginning to hurt as well from ZIRP.
This has evolved into a very dangerous situation…plan accordingly”

Garth has told everyone who reads this blog how to achieve decent long-term returns independent of whatever the interest rate environment happens to be at the time.

Try “saving” in asset classes that aren’t just GICs, bonds, and savings accounts. You’ll probably have a much better experience overall in the long term. The low rates and the housing bubble have provided an opportunity of the lifetime to buy into cornerstones of the Canadian economy at historically low valuations. XIU is the ticker symbol, go look it up!

#61 CPG on 05.25.14 at 8:10 pm

Check out the top line in both of the following data tables from the Bank of Canada:

Latest total household credit numbers for Canada to the end of April 2014:

http://credit.bankofcanada.ca/householdcredit

Latest total business credit numbers for Canada to the end of April 2014:

http://credit.bankofcanada.ca/businesscredit

#62 MarcFromOttawa on 05.25.14 at 8:11 pm

“dumb Caucasian Canadians”

The politically correct police, including the host of this blog, would have their panties in a knot if any other ethnicity was mentioned.

Read the previous 59 comments. — Garth

#63 ArrestedDevelopment on 05.25.14 at 8:11 pm

Come June 1, I am renting a 1.2 Mill bungalow in Toronto for $2000 a month from an absentee landlord in Hong Kong. Thoughts on what I should do with a 240 foot lot?

#64 Mark on 05.25.14 at 8:19 pm

“Maybe my idea was too broad. Seems like the whole idea of having tax payer on the hook for mortgage insurance for the term of the mortgage regardless of the property value increases is flawed and imposes unnecessary risk to CMHC. Could this be changed in future?”

Certainly the CMHC can change, subject to legislation and/or an Order in Council, its mandate at any time.

However, the $900B of subprime mortgage guarantees on their books are pretty much stuck there.

In an ideal world, as housing prices fall, the speculative interests of Canadians will shift elsewhere, and eventually salaries and earnings from business/industry would rise fast enough to take care of the problem, so that widescale CMHC subprime defaults do not occur.

However, this seems unlikely, absent a miraculous re-organization of the Canadian economy.

I personally believe the CMHC and the Government are going to have to cough up a few hundred billion $$$ to bail out the CMHC as the price declines accelerate. There will be an uproar, with the public perceiving that the banks are being bailed out by the CMHC while RE is falling. However, the banks, and their shareholders invested in the RE bubble on the theory that CMHC would make good on its legal obligations. While house equity, for many Canadians, quadrupled, or even more, in the past decade, bank shareholders, in comparison, have only earned a mere pittance of a return.

A likely scenario is similar to the 1990s, the bank stocks tripling or quadrupling over the next decade, while RE goes down and eventually flattens. Remember that banking is far more profitable during an asset deflation, than inflation.

#65 darth on 05.25.14 at 8:20 pm

The other reason our prices are so high: RE Agents who work on commission (and get paid when their clients buy or sell) telling their clients it’s always a good time to buy and sell … if the mutual fund industry can grow to $1 trillion on the strength of these mutual fund salespeople who call themselves financial advisors, it’s no mystery that housing has gotten so out of control.

#66 Vangrrl on 05.25.14 at 8:23 pm

#30 and #38:
You two are losers. ‘Our women’? #38 – take your sad low esteem issues elsewhere, why don’t you?

#67 I'm stupid on 05.25.14 at 8:23 pm

Ya because it’s the dream of every wealthy person, to leave their families and friends and move to a new country. Where they don’t speak the language and work for minimum wage. Hahahaha

#68 Cici on 05.25.14 at 8:27 pm

Poor, sweet dog, that looks dangerous ;-(

#69 Van Isle Renter on 05.25.14 at 8:33 pm

Ottawa Mike says “Canada is a smug nation of covert racists.”

+++++++++++++++++++++++++++++++++

Really? Please quit it with the “R-bomb”. I’m kind of tired of people dropping the R-bomb every time they don’t have the facts to win an argument. Please name a country that is less racist and welcoming than Canada. Seriously. Try to….

#70 OttawaMike on 05.25.14 at 8:35 pm

66 Vangirl

Did you even read my post ???

Because your response. Indicates a reading comprehension issue.

#71 I'm stupid on 05.25.14 at 8:35 pm

Mark

I must admit, I enjoy reading your posts. You are a welcomed addition to this blog.

#72 gladiator on 05.25.14 at 8:40 pm

@30 OtttawaMike:

They took our jobs!
http://www.youtube.com/watch?v=80D7RRquPww

#73 Marco Polo on 05.25.14 at 8:43 pm

Here in Edmonton,

A big indicator of where housing is can be clearly seen by advertising.

Very often, radio adverts are for developments or mortgages, same with junkmail in the door. Newspaper ads have many housing and mortgage adverts. I watched a movie in the theatre, and heard about the latest local suburb, and maybe an RBC mortgage too.

So, if you’re orders are full, and you have trouble selling an item, and have to turn customers away, do you soend money on advertising? No, you don’t. This advertising market saturation indicates only that mortgage applications and sales are below target.

When I visited Ukraine, several years ago, there were several ads in this new economy. Brands being promoted were a certain line of cooking oil, and of how great Tide is for laundry. Lots of promotion of pay as you go GSM cellular.

Not much of a mention of RE. An multinational company would be burning cash promoting real estate the locals had no cash or credit for. Instead, they promoted items that would sell there, and build brand recognition.

Things have since changed there of course. Here in Canada, we keep waiting for a straw to break the back of this housing camel, but we keep drinking the kool aid.

#74 Old Man on 05.25.14 at 8:47 pm

I take exception about the negative talk about certain ethnic groups, so why not discuss the positive things that they contribute to Canada as well. Its all a matter of balance in society that we as citizens must accept.

#75 Millenial-Falcon on 05.25.14 at 8:49 pm

#59 snoboid

sorry yoda its not about patience, its about people here getting a grip on reality, if you read zero-hedge everyday and stockpile baked beans its gona skew your perception of whats really happeneing in the economy. people on this blog are looking for anything to support their chicken little theories. things are great here on the coast and there is a lot of opporunity for us gen ys willing to work hard! just cause ur neighbor got layd off from his senior bumper polisher position at the bumper plant in Muncton doesnt mean were headed for a depression. At least he can fall back on his first rate education and degree he had to obtain for that great position at 40 bux an hour with 7 weeks holiday plus 3000 a month pension when he retires…..right?

#76 bob on 05.25.14 at 8:51 pm

Is there to short this cdn housing via some sort of bear ETF?

#77 -=jwk=- on 05.25.14 at 8:53 pm

@50 Mark Rents are catching up to house prices in a few areas… for example, check out this uber-skinny semi-detached place for rent at $4250 per month:
http://www.kijiji.ca/v-house-rental/city-of-toronto/24-ranleigh-ave-renovated-rental-yonge-lawrence/593325618

($4250/month is about what you’d see for the mortgage payment on a $900,000 principal @ 3% w/ 25-yr amortization)

As a general rule, to generate a decent return you need about 1% of the price per month. After expenses that will net you 7-8% per year ROA. So a 900k semi like this one would need to fetch 9000/month to be a solid investment. Rents catching up? Not even close.

#78 shredder on 05.25.14 at 8:53 pm

The reason houses cost so much?

Harper Sales Tax on everything

HST is a job killer

#79 Victor V on 05.25.14 at 9:01 pm

“Perhaps this argument can be made for areas outside of the GTA for areas like Brampton, Mississauga, Markham, etc. but that does not explain why a SFH in the core is now over $ 1, 000,000. Those prices are being driven by dumb Caucasian Canadians with no brains and lots of debt.”

How true this is.

Recently, a friend of mine, single caucasian female (born and bred Canuck) in her 40s decided that she’d had enough of renting and began house-hunting. Within a month, she found a semi in downtown Toronto, got into a bidding war and then made an offer 10% over asking (her realtor’s advice).

Well she ‘won’ the bidding war.

Afterwards, she appeared nervous when we met up for coffee. Apparently she hadn’t even had a lawyer to look at the offer before submitting nor had she hired an independent home inspector. Moreover she’s broke as she’s raided her RRSP and line of credit to finance the down-payment and closing costs.

Here was a woman with a decent job who traveled each year, saved money as her rent was nominal and also got out to hang out with friends and enjoy life.

Now, she’s a debt slave. Her housing costs have almost tripled, eating up a large share of her net income, no savings and she’s become more anxious than a jumping jack conceding that she’ll effectively have to eat cat food to stay afloat.

Sad.

#80 OttawaMike on 05.25.14 at 9:03 pm

69 van island renter

Easy. America.

Take in way more and don’t pretend they are tolerent and welcoming even though they really are more so than any nation on Earth.

Read some of the comments here this week. Google Canada’s past immigration exclusiion policies and get back to us.

You think its a coincidence brown peoiole only started arriving here en mass 50 yrs ago ?

#81 Smoking Man on 05.25.14 at 9:05 pm

#196 Big Brother on 05.25.14 at 3:29 pm

You’re damn good…

#82 TurnerNation on 05.25.14 at 9:07 pm

So yeah at the TSX conference last week, this question was posted to the panelists of head traders and regulators: is the market rigged.

Beyond the nervous titters the IIROC gal nailed it. Their job is one of cops in the market. Nefarious sorts will always be there. They issue ‘speeding tickets’ and take licences away. It’s like driving.
Ma & Pa will still be able to purchase their 185 shares of BCE unmolested. Widows & Orphans will still Drip.
Lambs will be fleeced.

http://business.financialpost.com/2014/05/21/is-high-frequency-trading-tainting-canadian-markets-with-the-dirty-r-word/

#83 Socrates Questions on 05.25.14 at 9:07 pm

From today’s LA Times…no FHA mortgage insurance for you condo owners. Is CHMC reading this?

http://www.latimes.com/business/realestate/la-fi-harney-20140525-story.html

#84 TurnerNation on 05.25.14 at 9:09 pm

They should have bought GICs!!

“How your pension is doing: a 16.5% annual return

CBC.ca – May 23, 2014
The 2013-14 financial year was an unusually strong one for the Canada Pension Plan Investment Board, which earned a 16.5 per cent annual return on the billions of dollars in assets it manages for the national retirement system, but its CEO cautions that …
CPPIB’s active investment plan scores big with 16.5% rate of return The Globe and Mail”

#85 Mark on 05.25.14 at 9:10 pm

“Is there to short this cdn housing via some sort of bear ETF?”

Not really. The banks are positioned with an effective “short” position on the housing market, but its not a perfect hedge. Best way to take advantage is to buy out-of-favour assets, and let them rise as they cyclically rotate back into favour.

For instance, in the 1990s, the TSX languished at the 3000-4000 level for many years, much like the TSX has languished between the 12k and 14k level in Canada for the past 3-4. And as housing went down in the 1990s, the TSX exploded as speculative interest moved away from housing and towards stocks.

If you want greater returns than just what might be implied by the TSX alone, you’ll have to go looking for deeply cyclical and out of favour sectors/stocks. For instance, in the 1990s, it was Bombardier and Nortel that were the darlings. Might it be the Gold sector this time around? With a sprinkling of Bombardier C-Series goodness and reliable dividend income from the oil/gas and banking sectors?

#86 Larry Laffer on 05.25.14 at 9:10 pm

In our parts, the issue is not HAM. But some suggest it may be HEM – Hot European Money. Simply put: our currency is still trading at a bargain against the Euro. Some fresh off-the-plane European immigrants (plenty of those in my neighborhood, especially from France) are able to push housing price higher because their hard-earned euros have a larger purchasing power than our canadian dollars. These new Canadians are not wealthy millionnaires or robber barrons, just average mid-class folks, but they’re definitely having an impact on some housing markets, one being Montreal’s Plateau Mont Royal neighborhood.

That said, I don’t think anybody cared to quantitatively assess the magnitude of this currency effect on the markets, and lack of accurate housing data would probably prevent it anyway.

#87 Bargains everywhere on 05.25.14 at 9:21 pm

#32 Mark on 05.25.14 at 7:07 pm

Since we know that “HAM” is mostly recent immigrant Canadians borrowing their brains out on CMHC-insured sub-prime credit….
___

We know nothing of the sort. Show us stats to prove this, please.

#88 Mark on 05.25.14 at 9:27 pm

“We know nothing of the sort. Show us stats to prove this, please.”

Leverage is right off the charts, and is almost perfectly correlated with RE prices growth. So this rules out the idea of a foreign injection of cash to the RE purchase market.

So how else can “HAM” be explained, since we know that they’re not bringing any statistically relevant amounts of cash to the table?

#89 Pardon? on 05.25.14 at 9:27 pm

First, Mark thank you for letting me post on your blog uhm I mean comment section.

Arrested Devolpment, you saw this on a tv show right? Even if any of it were true you’d be dealing with a management company or real estate agent and would know nothing about this alleged landlord, they would be well insolated. At best you would know some numbered company to make the cheque out to.

Every time I see someone whining about how they got beat out on the umpteenth bidding war for some decrepit property it’s some white couple if on tv or if in print the names would lead you to believe the same. The point being even if one were to except the premise that some immigrants or absentee oversees buyers may be overpaying for properties anywhere in Canada (because that’s how they got rich in the first place, overpaying for everything they could) surely this can’t be the case so often that if average Canadians were saying that’s nuts and walking away (as they should have been for years now) that foriegners could possibly be that large a part of the market to have caused the obscene price escalation.

I rented a bungalow in Etobicoke in the mid to late 70s with a 300′ backyard and paid 285 a month plus utilities. I really have to wonder why it would be worth 2,000 now. Parents bought a place in the early 60s for 13,000 that now similar places are listed for close to 400,000. How does that make any sense? We have had a couple of major market corrections since then and the places almost certainly need to be gutted and weren’t anything special to begin with.

No I think the masses believed the spin, the government changed rules multiple times to make it easier to buy for their own cynical purposes and world events dicatated the low interest rates that further enabled people who really had no business buying houses and wouldn’t have absent all these factors.

Now our fine government find themselves in the position of having stoked these flamed then retreated to a degree, now paralized by the fear that doing what needs to be done might cost them the next election. Especially in the face of their constant proclamations of how well they have managed the economy despite indications of the opposite. In my opinion they have only postponed the invetable and in doing so made the eventual outcome even more severe.

#90 Pope Freakedout Snugglebums the 666kg (aka Nosty) on 05.25.14 at 9:28 pm

#166 [email protected] on 05.24.14 at 11:17 pm — “Pretty weird to see the usually crammed streets deserted for the 10pm – 5am curfew.”

Noted. These two reports may have something to do with the uprising — Here and here. Of course, the US has now ceased all military aid and funding to Thailand, as the Thais are not being good sports about it.

Breaking up is hard to do Esp. financially, but now the west (US – Israel) has their chosen muppeteer installed. Paras. two and three are interesting.

#91 Bargains everywhere on 05.25.14 at 9:36 pm

#88 Mark on 05.25.14 at 9:27 pm

So how else can “HAM” be explained, since we know that they’re not bringing any statistically relevant amounts of cash to the table?
___

And how do we “know” that they’re not bringing big amounts of cash to the table? Oh, that’s right – we don’t. Everything you say is pure conjecture.

#92 dosouth on 05.25.14 at 9:41 pm

More fuel to the fire in Vancouver….

Vancouver building permits to cost more – race to beat the rise. Permits up 40 per cent in February and March compared to the same period last year……

#93 Frustrated Kiwi on 05.25.14 at 9:50 pm

Absolutely no different down here – and we’re slightly above Canada on the overvaluation stats by the OECD. Same memes (although the acronym HAM has not yet appeared), same bidding wars (except through formal auctions usually), and same risk. I do have a bit of an issue with the OECD metrics though – they are over/under valuation relative to historic norms. That is why Japan shows as undervalued – it peaked at a ridiculous height about 25 years ago and has been decreasing every since. But Japan’s median multiples are around 4 (demographia survey) so it’s still not cheap. Given their demographics I doubt many are arguing that Japan would be a great place to invest in real estate. Certainly can’t use the OECD survey to compare countries.

#94 sheane wallace on 05.25.14 at 9:51 pm

#62 MarcFromOttawa

It is reversed racism where white folks are the victims and there is nothing they can do, in North America this is reaching a degree of paranoia which I believe is by intend. One remark/even friendly and you career could be over or you could go to jail. It is called Hypocrisy. Europe is much better place for white folks.
………………………………
#60 Mark

People should not need to know about investing, there is a risk associated with it and not everyone specially at old age can afford or survive market drops ans losses.
The government suppression trough ZIRP is basically stealing from savers by giving them LESS than what the fair market interest rates would be in this environment.
It is government FORCEFUL STEALING from people.

Yes, I know how to invest and I manage to at least save my capital but nevertheless I believe that helpless citizens should not be robbed by clueless irresponsible governments with the argument that they should learn about investing. Mark my works, at some point and that could be soon this suppression/theft would backfire as there is only that much they can steal.
Worse is that they openly lie about inflation, massage and manipulate statistics and market which has nothing to do with the principles of moral and democracy.

Once the trust is lost there is NOTHING they can do to win it back.

#95 sheane wallace on 05.25.14 at 9:55 pm

Note that I am talking about governments in general, but I really mean central banks, in same cases they are not really government bodies.

#96 Bottoms_Up on 05.25.14 at 9:59 pm

#3 Big Al ( New ) on 05.25.14 at 5:19 pm
———————————————-
That’s an interesting story, but who’s to say that 350k isn’t still over-paying?

One family paid 700k. The next family paid 350k. Perhaps 200k would be too much???

One problem here is that humans have a notoriously difficult time comprehending vast numbers. And ultimately what it’s ‘worth’ depends on a complex interplay of factors. But this is exactly why the real estate community should be tightly regulated, and all the data and information made publicly available so people can make the best buying decisions possible.

“My agent tells me it’s worth 700k, the bank is willing to give me the money, the government is allowing me to raid my retirement fund for the dp, and my friends tell me prices ‘always go up’, how can I lose”?

#97 Ralph Cramdown on 05.25.14 at 10:00 pm

#80 OttawaMike — “Easy. America. Take in way more and don’t pretend they are tolerent and welcoming even though they really are more so than any nation on Earth.”

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2112rank.html

#98 DreamingInTechniColour on 05.25.14 at 10:04 pm

And sooner or later, their home built on credit cards all comes crashing down…

#99 sheane wallace on 05.25.14 at 10:10 pm

#86 Larry Laffer

You are clueless,
1. There are no immigrants from France to Quebec in the last 30 years as life in France is much better than in Quebec including health care.
2. If you are talking about investors, real estate in France is much cheaper (notably except Paris) than in Canada, if I am french investor with money I would be buying real estate in Germany.

#100 Joe2.0 on 05.25.14 at 10:11 pm

Not buying it.

I see the changing demographics in my neighbourhood in North Van.

The Chinese family that bought the house next door don’t speak english.
The young man(21)who owns the house we rent is Chinese and his girlfriends parents just bought her a 1.4 million dollar house.
Both of their parents live in China.

Also in West Van lot of new residents wearing burkas not speaking a word of English.

Checkout Park Royal and Whole Foods or the seawall sometime, or take a walk down Lonsdale it looks like an airport in the Middle East.

Immigration definitely is impacting these housing markets.

#101 Mark on 05.25.14 at 10:11 pm

“And how do we “know” that they’re not bringing big amounts of cash to the table? Oh, that’s right – we don’t. Everything you say is pure conjecture.”

Leverage would be declining if cash was being injected in a significant way from either domestic or foreign sources. But the evidence is abundant that the housing bubble is debt financed, not cash-purchased.

#102 Bob Rice on 05.25.14 at 10:13 pm

We always had lots of immigration… actually, the highest levels of immigration was in the early part of the 20th century when a majority of people were born outside of this country… peaked at 400,000ish during the pre-WWI era..

USA had lots of immigrants settling there during their big crash and Ireland had much less, as its not a big destination for immigrants.. so foreigners probably have less impact than many believe

#103 sheane wallace on 05.25.14 at 10:24 pm

Racial harassment is a form of discrimination. It includes comments, jokes, name-calling, display of pictures or behaviour that insults you, offends you or puts you down because of your race and other related grounds. – See more at: http://www.ohrc.on.ca/en/racial-discrimination-brochure#sthash.nfvqgabz.dpuf

#104 Larry Laffer on 05.25.14 at 10:47 pm

@sheane wallace #99
Who’s clueless? Odds are that you never set foot in Plateau Mont Royal in the last decades if you think there are no immigrants from France to Quebec. These are not investor immigrants, they’re average middle-class folks, who elect to come here because there’s just no economic future in France. No France is not better than Quebec – just ask THEM. Oh, but I forgot: they don’t exist and I’m clueless.

#105 bob dog on 05.25.14 at 10:48 pm

Currently interviewing for a position in silicon valley. A one bedroom rents for around $2500 which is almost double what I pay in downtown Vancouver. Houses, however, are about the same price as Vancouver. If nothing else this tells me that home prices in Vancouver are way out of whack with rental costs.

#106 lala on 05.25.14 at 10:55 pm

Got to love HST, best time to make money, worst time to buy a house. It’s so eeeaaasssyyyy.

#107 Mark on 05.25.14 at 10:56 pm

“The government suppression trough ZIRP is basically stealing from savers by giving them LESS than what the fair market interest rates would be in this environment.”

“savers” (by “savers”, I am assuming you mean people who buy GICs and put money into cash “savings accounts”) have been very generously rewarded over the past 30-35 years in Canada. Indeed, the returns in GICs and bonds have exceeded that of even the stock market, with the realized equity risk premium being actually slightly negative.

If Canada’s economy is to ever recover and become prosperous outside of the RE sector, investors need to be rewarded for their efforts. Investment and employment in Canada has been quite anemic in Canada because previous investment has not been rewarded with an equity risk premium.

The government, and the central banks don’t owe it to anyone to prop up a certain asset class, whether it be stocks, bonds, GICs, or cash. Their mandate, strictly, is to keep inflation at the 2% target. If this takes ZIRP, or even significant stimulus measures, so be it. Individual ‘savers’ can invest in a multitude of asset classes, such as stocks, precious metals, amongst other things, that will not fall victim to such policy. Bottom line is that “savers” who are negatively affected by ZIRP have only themselves, and their un-balanced portfolios to blame.

#108 45north on 05.25.14 at 11:14 pm

A recent Conference Board study says the OECD is nothing by a bunch of scaremongerers, and real estate in Canada costs a bundle exactly because we’ve a growing portion of the population that was not born here.

co-relation is not causation. All real estate is not equal, Toronto is more attractive than Winnipeg, it costs more and it attracts more immigrants.

The Conference Board is running scarred.

#109 natrx on 05.25.14 at 11:20 pm

No doubt immigrants have had an impact on housing values. Particularly China thus ‘crowding out’ the traditional Caucasian in North York along Yonge St. primarily.

Minorities/Immigrants also tend to go to North East Scarborough where housing values are still relatively cheap (think Malvern, Morningside, West Hill).

But you do have alot of young couples, looking to live that ideal lifestyle in the older part of Toronto. Some parts such as High Park, the Kingsway have all sorts. But mainly, young, educated professionals looking to move in. While Danforth East, and around the Riverdale area have the more Caucasian type families.

I was talking to my wife today about an observation:
Many minorities/immigrants want ‘value’ and a large house. Boxy and newer. Higher % square footage relative to lot size. They love to drive everywhere, especially Cosco! and thus have multiple cars. It must be an import.

Therefore, the GTA fits that bill perfectly (Markham, Vaughan, Richmond Hill, etc.). The kids will get driven everywhere, and must stay home to study.

Also, having a basement apartment for extended family members or renters. Hey, it’s about value right?

The more ‘traditional Canadian’ on the other hand wants a house with ‘Character’, a century home if possible. Nice lawn and curb appeal. Being part of the community where you can walk to shops, parks, close to a yoga studio, dog-friendly neighboourhood. Nice tree lined streets. Perfect kitchen. Now of course, this is where the BIG mortgages have been exploding to live that dream. Hey, if rates and the economy stays the way it does over the 20 years, maybe all is good. But as soon as there is reversion to the mean, there will be alot of heartaches.

#110 sheane wallace on 05.25.14 at 11:23 pm

#107 Mark

Interesting thoughts, but:
1. Governments and central banks are public servants and the public opinion counts/you will see it soon, just watch the Ontario elections and then the Federal elections.

2. Governments have no business in messing with the markets, they have not competency for that.

3. I am looking for a government official to support openly your view and then we will see what is going to happen with the currency,
………………………………….
Bottom line is that “savers” who are negatively affected by ZIRP have only themselves, and their un-balanced portfolios to blame.

This is arrogant and even if you are the greatest investor on earth which clearly you are not a little humility would help.

This world has some funny and unexpected ways of punishing arrogance (lie and arrogance are the greatest sins)

#111 sheane wallace on 05.25.14 at 11:26 pm

Investment and employment in Canada has been quite anemic in Canada…

because of government messing with the markets causing capital miss-allocation in housing, what makes you think the same government that screwed it now is going to fix it?

#112 mathman on 05.25.14 at 11:32 pm

People of all walks of life, colours and creeds have drank the kool aid, so makes no sense to single out one group.

I’ve said it a million times and will continue, without CMHC, homes in Tor/Van/Cal would be 50% less or more. Low interest rates + terrible policy + Financial illiteracy = a massive bubble

Had dinner with Friends recently and they are the epitome of the problem. Entitlement personified. Two low end luxury leased cars (Lxs and a Merc) ($1200/month), two go train passes from Burlington (600/month) a beautiful house they “”OWN”” that probably costs them close to 4k or more all in. Incredible furniture and landscaping all on borrowed money.

They have all the show me items, awesome TV, coolest new phones, everything that fruit company makes and more. Nice clothes, the works. They must be doing so well on the surface, but they are up to their eyeballs.

They make the same as us before tax. The difference is we rent for half of what they pay, have one nice car(700/month) and marginal commuting costs as we are both 5km from the office and live on the subway line. Company pays for our phones, 6 year old plasma that works fine. Buy my suits/work clothes in the US for half of what they would cost here including the duty. Enough in the bank to pay cash for a home in the most cities in Canada.

consumption overall is the problem. The house is the obvious, but peel back the layers and it’s the leased cars at rock bottom rates, the home equity line to pay for renovations to a house the bank owns etc. etc. The goose is cooked once rates rise and these folks are the rule, not the exception. This makes me incredibly uncomfortable about the economic prospect for Southern Ontario, once the golden real estate goose is gone.

#113 Sheane Wallace on 05.25.14 at 11:48 pm

#104 Larry Laffer.

If you are correct and French middle class families are not living well in France and would come to Canada they would either:
1. Have no savings, if they do what are they running away from (who in Canada has savings), why that hurry to become debt slaves?
2. Are coming from Paris after having sold their properties there which no one in their right mind would do.

Mentioning Quebec as better place to live than France gives you no credibility. I actually know people who are moving back to France, they came here 30 years ago.

You no doubt know the Quebec popularity (actually the lack of such) in France.

#114 Flawed on 05.25.14 at 11:53 pm

I’d be curious to know if there was a study that links the size of total amount of public sector workers (muni, prov, federal) and the housing issue here. In other words, lots of golden handshake workers meaning lots of people buying overpriced houses because they know they are set for life.

#115 Ronaldo on 05.26.14 at 12:15 am

#63 ArrestedDevelopment –

”Thoughts on what I should do with a 240 foot lot?”

Plant a garden. Open up a farmers market.

#116 Flawed on 05.26.14 at 12:18 am

Bottom line is that “savers” who are negatively affected by ZIRP have only themselves, and their un-balanced portfolios to blame.

*********************

This statement is extremely flawed. People are “forced” to invest in “risky” so called balanced portfolios because of the way a “handful” of bankers in New York and London have shaped the world. Once this cancer is finally removed from society with things like Bitcoin , 3D printers, transparency, less dependence on oil etc etc things will normalize again and prices will rise at a normal clip. Thank’s to our phony democracy, Canada is always at the bottom of the OECD list of countries. But again, things will normalize again once the banker cancer is finally removed and we all work together to make the world a better place. Time. It’s all a matter of time. Rolling your eyes? Guess you better read this:

http://www.coindesk.com/federal-reserve-bitcoin-potential-boon-global-commerce/

#117 Happy Renting on 05.26.14 at 12:19 am

#79 Victor V on 05.25.14 at 9:01 pm

I’d say “dumb moves” more than “sad”.

– Buying the hype that RE is a good investment.
– Believing that owning is better than renting (neither is perfect.)
– Raiding RRSP and LOC.
– Buying very quickly, likely with limited independent research into the local market and valuations.
– Getting caught up in bidding war.
– No legal advisor.
– No inspection (this one is so egregious it should almost be mentioned twice.)
– Not setting a realistic budget that doesn’t destroy her lifestyle and leave her eating cat food.
– Not leaving a buffer for emergencies (what if she loses her job?)

I say this having made at least half these same mistakes, myself, when I bought. Here’s hoping the downtown location of her semi saves her. Give it half a year, and if the valuation on her house increases enough for her to break even, you could start gently suggesting selling to relieve herself of the huge burden. A lot of people pay a lot more than $0 for an expensive education in RE.

#118 Happy Renting on 05.26.14 at 12:26 am

I also think #38 crosses a line. It’s not more acceptable because he didn’t single out black/yellow/brown women.

#30 OttawaMike – I had to re-read your comment to check what the real message was. Everything but the last sentence leads in the other direction, I could see how someone speed-reading comments would miss it.

#119 Happy Renting on 05.26.14 at 12:31 am

Speaking of midtown Toronto, there’s a SFH listed for $879,000 by Mt Pleasant and Eglinton. I’m guessing it’ll go for $1.2M… Anyone think I’m guessing high/low?

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=14457556

#120 nonplused on 05.26.14 at 12:31 am

Hey Greater Fools! Nonplused back from the grave but not a lot to say today other than this:

The cost of something (inflation adjusted) always rises or falls to something about the cost of production plus a reasonable profit on the capital employed.

Even the iPhone is doing that. Despite being probably the world’s most ever hyped and desired consumer product, the 5c is falling nicely in line with what Samsung can charge.

Ya sure they aren’t making any more land. But that argument is poppycock. Anyone who has been from my neck of the woods (Calgary) to New York or any other major city knows there are ways to multiply land. 7 stories up is the most obvious and least technological, but if you want to add an elevator then a building can easily have 50 times more “land” than it occupies.

And if you are in Calgary, there are plenty of people keeping horses on 4-10 acres who are but 10-15 minutes from a train station. The land is not rare. Or in short supply. If we move the horse out another 10 minutes, we could build another New York. If there was demand, which there isn’t.

#121 Setting the Record Staight on 05.26.14 at 12:51 am

The analysis presented today can only be described as disingenuous.

Read Lasch– Revolt of the Elites

#122 Son of Ponzi on 05.26.14 at 12:54 am

#76 bob on 05.25.14 at 8:51 pm
Is there to short this cdn housing via some sort of bear ETF?
——————–
The best way to short CDN housing is to rent.

#123 Son of Ponzi on 05.26.14 at 1:08 am

#74 Old Man on 05.25.14 at 8:47 pm
I take exception about the negative talk about certain ethnic groups, so why not discuss the positive things that they contribute to Canada as well. Its all a matter of balance in society that we as citizens must accept.
———–
Please enlighten us with some examples.

#124 evade taxes on 05.26.14 at 1:28 am

It’s not the HAM’s that evade taxes and do not declare income. It is the rich regardless of background.

http://www.spiegel.de/international/business/icij-journalists-expose-mass-web-of-global-tax-evasion-a-892505.html

Companies are just the same:
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/20/how-to-make-30-billion-and-pay-no-corporate-income-tax-the-apple-way/

#125 SCIBADUBADEBUMBADO on 05.26.14 at 1:41 am

Nothing is going to change until after the election.
If prices start to crash before the election the Conservatives will bring in 30 and 40 year amortizations again.
That is the reason for the trashing of them in the last few years.
It gives the gov. a buffer zone to play with before an election.
Get over it. Governments have their priorities and it goes like this.
Priority #1 Do what gets us elected.
Priority #2 Do what gets us elected the next term.
Priority #3 If there is anything left over, then throw the peons a few bones.

#126 Tamsen on 05.26.14 at 1:48 am

“Joe2.0 on 05.25.14 at 10:11 pm Not buying it.

I see the changing demographics in my neighbourhood in North Van.

The Chinese family that bought the house next door don’t speak english.
The young man(21)who owns the house we rent is Chinese and his girlfriends parents just bought her a 1.4 million dollar house.
Both of their parents live in China.

Also in West Van lot of new residents wearing burkas not speaking a word of English.

Check out Park Royal and Whole Foods or the seawall sometime, or take a walk down Lonsdale it looks like an airport in the Middle East.

Immigration definitely is impacting these housing markets.”

We’ve lived in Vancouver since 1993 and 100% agree!
So true! We hear this all the time, similar stories and experiences about how things have changed so much here in 20 years …

#127 TakingResponsibility on 05.26.14 at 2:02 am

Regarding the legitimacy of “The Conference Board of Canada” (such an official sounding name!), there’s a great book by D Abelson, “Do Think Tanks Matter? Assessing the Impact of Public Policy Institutions” that covers the phenomena of the legitimization and proliferation of such quite thoroughly.

I don’t know why I used to imagine ‘think tanks’ were comprised of these very intelligent, disparate, and disinterested individuals who somehow got together to provide fresh perspectives for the good of all …. And were definitely unbiased especially if they used the words ‘non-partisan’!

By and large, “Think tanks” are there to change the climate of belief – of concern to them is the relationship to media in dissemination. For the public, it is or should be concerning that the media seems to have outsourced news to these ‘think tanks’ without analysis.

The media and people should be skeptical of the Canada Conference Board after the plagiarism debacle anyway.

#128 drydock on 05.26.14 at 3:35 am

You want to know the real reason everything is the way it is today?
Watch this video.

http://www.youtube.com/watch?v=bgyumGSF9-4

#129 OttawaMike on 05.26.14 at 5:40 am

#97 Ralph Cramdown on 05.25.14 at 10:00 pm

Thanks Ralph, I like the CIA Factbook as a source to but total numbers of new immigrants is still higher in the US. Those figures are per 1000 members of population. They didn’t get to a 320,000,000 population by having big families.

Keep in mind that since the GFC, America has not had the job opportunities it once had so the Mexican inflow has all but stopped:

http://www.pewhispanic.org/2012/04/23/net-migration-from-mexico-falls-to-zero-and-perhaps-less/

#130 UVZ on 05.26.14 at 6:45 am

So HAM may actually turn out to be HAD, where D=Debt.

#131 Australiasayshi on 05.26.14 at 6:52 am

Hi from Australia!

http://www.heraldsun.com.au/realestate/dilapidated-home-in-leichhardt-went-under-the-hammer-for-980000/story-fnhytr0m-1226931811079

#132 Ralph Cramdown on 05.26.14 at 7:15 am

#120 nonplused — “The cost of something (inflation adjusted) always rises or falls to something about the cost of production plus a reasonable profit on the capital employed.”

I remember when I used to believe this economic fable. A few decades of experience and observation disabused me of it. Some companies build themselves great monopolies that last decades. Coca Cola, a classic example, sells sugar water, currently at a return on equity of 26%. There’s many other examples, from drug companies to unregulated telecoms to your local dentist. Apple still makes lots and lots on its iphones; an estimated US$180 build cost for the 5c versus a $599 price tag at Apple.ca — and how many teenagers convince their parents to buy the 5s because kids with 5cs get laughed at?

If you were to break down all your life’s spending into stuff (including labour and services) that’s sold at cost+markup and stuff that’s sold at a price with little relation to that or at very large margins, I think you’d be surprised. Heck, look at Garth’s business. It doesn’t cost him any more to service a $10mm client than a $1mm one (and I bet, on average, his bigger ones require less servicing time and cause fewer headaches).

#133 Joe on 05.26.14 at 7:16 am

With immigration levels of 300,000 to 400,000 newcomers per year to Canada, it’s completely disingenuous to say immigrants aren’t having a major impact on real estate.

Immigration annually has been in the 250,000 range – 0.8% of the population – for over a decade. This equates to about 80,000 families, many of whom are in no position to buy a home. How could this be a ‘major impact’? — Garth

#134 Ralph Cramdown on 05.26.14 at 7:30 am

#116 Flawed — “People are “forced” to invest in “risky” so called balanced portfolios because of the way a “handful” of bankers in New York and London have shaped the world.”

Nobody forces you to invest in anything, but putting your money in GICs and then complaining about the returns is like spending every day on the couch and then complaining that your career isn’t advancing.

Every day, a billion people get up, put their pants on and work as hard as they can to grow their assets and wealth. There’s hundreds of ways to do it, but all the lucrative ones require work or risk.

You set yourself a hurdle rate, be it 7% or whatever, and you say to yourself “self, I’m not going to accept less than that for my money. I’m going to educate myself, and seek out a diverse list of investments which should earn me more.” Even BCE, which used to pay 5.3% just a short while ago now pays less than 5Or you can shop for the highest yielding GICs and get maybe 2.5%. Or go to your local bank and get whatever it’ll pay you. But stop the whining that this has something to do with New York bankers. You are not entitled to a government guaranteed above-inflation return on your money.

#135 Sheane Wallace on 05.26.14 at 8:43 am

without CHMC prices would be 50 % of the current prices
without ZIRP/with market rates they would be 30 % of the current prices
with cash only and no credit they would be 20 % of the current prices

The 3rd option is not very unlikely considering where central banks and currencies are going.

#136 Shawn on 05.26.14 at 9:02 am

Impact of Immigrants

Immigration annually has been in the 250,000 range – 0.8% of the population – for over a decade. This equates to about 80,000 families, many of whom are in no position to buy a home. How could this be a ‘major impact’? — Garth

*****************************************
Perhaps because the 80,000 families is a much larger percentage of first time home buyers than the 0.8% would suggest? (If they don’t buy immediately, then may tend to buy eventually.)

But in the end, who cares? Immigrants are allowed to come and that is as it should be.

House prices are what they are. They are high mostly due to low interest rates which create affordability of high prices.

Only higher unemployment or higher interest rates will push house prices down.

Immigrants who ‘eventually’ buy are called ‘Canadians’. — Garth

#137 RichHill - RichVale Girl on 05.26.14 at 9:20 am

#107 Mark
keep inflation at the 2% target.

Why is it important for government to keep inflation at 2%. Why not 0%?

No inflation = no growth, few new jobs. — Garth

#138 };-) aka Devil's Advocate on 05.26.14 at 9:29 am

SHIFT happens…

#139 Bubblicious on 05.26.14 at 9:40 am

#134 Ralph Cramdown on 05.26.14 at 7:30 am
Nobody forces you to invest in anything, but putting your money in GICs and then complaining about the returns is like spending every day on the couch and then complaining that your career isn’t advancing.

Are you calling me lazy?

#140 BCQC on 05.26.14 at 9:42 am

#114 Sheane Wallace

France was the #2 country of origin of all Quebec’s immigrants in 2013, second only to China.

The Government of Quebec’s Statistics:
http://www.stat.gouv.qc.ca/statistiques/population-demographie/migration/internationales-interprovinciales/603.htm

#141 Daisy Mae on 05.26.14 at 9:42 am

#9 Yashar: “….This is how the housing was engineered not by immigration…..”

********************

In other words…government interference.

#142 maxx on 05.26.14 at 9:45 am

Excellent post Garth.

“Those prices are being driven by dumb Caucasian Canadians with no brains and lots of debt.”

There are evidently lots of dumb CC around, enabled by dumber monetary policy with tptb happily checkered-flagging the dumb over the cliff. This bs is further rammed down people’s throats by specious “Official Communication” by people who know better, but stick with the “economic recovery is just around the corner” wet dream.

Individual citizens are by far not the only idiots.

Canada really should look beyond its own borders for fiscal wisdom.

Just less dangerous.

#143 Herb on 05.26.14 at 9:59 am

#132 Ralph Cramdown,

“reasonable” profit behind the curtain is newspeak for the maximum that can be extracted, and practically a legal and moral obligation under capitalism.

Allowing other considerations would be socialism.

#144 Sebee on 05.26.14 at 10:02 am

Ha ha ha!

http://www.theglobeandmail.com/globe-debate/the-end-of-carneys-british-honeymoon/article18829447/

>
There’s one risk Mr. Carney doesn’t have to worry about, though. He reportedly chose to spend his £250,000 annual housing allowance on renting, rather buying, a home in unflashy West Hampstead.

#145 David Hawke on 05.26.14 at 10:13 am

#19 Finally someone who sees the big picture, offshore money invested in a residential property for the sole purpose of taking advantage of Canadian social services at a higher rate than Canadians can claim.

Say thank you Herr Harper!

Provide any credible evidence, please. — Garth

#146 FormerSaskie on 05.26.14 at 10:27 am

A question, when house is under water relative to mortgage owing, is it better to cut your losses and sell at the start of the slide or (assuming stable employment in healthcare) just live in the house for the next 25 or so years and downsize in retirement?

#147 T.O. Bubble Boy on 05.26.14 at 10:33 am

@ #77 -=jwk=- on 05.25.14 at 8:53 pm
@50 Mark Rents are catching up to house prices in a few areas… for example, check out this uber-skinny semi-detached place for rent at $4250 per month:
http://www.kijiji.ca/v-house-rental/city-of-toronto/24-ranleigh-ave-renovated-rental-yonge-lawrence/593325618

($4250/month is about what you’d see for the mortgage payment on a $900,000 principal @ 3% w/ 25-yr amortization)

As a general rule, to generate a decent return you need about 1% of the price per month. After expenses that will net you 7-8% per year ROA. So a 900k semi like this one would need to fetch 9000/month to be a solid investment. Rents catching up? Not even close.
———————–

A couple of points:

#1) I’m sure that the owners would try to sell this place well beyond $900k… I was just demonstrating the equivalent mortgage payment vs. the $4250/month rent.

#2) $4250/month = $51,000/yr in rental income. If I assume a $1M purchase price, that’s a 5.1% yield (ignoring property taxes). That’s a P/E of about 20, which is high, but not as “off the charts” as it has been. There were many $1M houses renting around $3000-$3500, or a P/E of about 25-30.

#148 Bottoms_Up on 05.26.14 at 10:44 am

#133 Joe on 05.26.14 at 7:16 am
———————————-
You’re right, immigration is around 350,000 these days. But one has to use good judgement to consider the actual impact on the housing market.

My analysis is that this contributes to around 600-700 sales per month in the GTA. Sure it has an impact, but how heavy is that impact?

The report does make an interesting point, that if many of the immigrants have low wages that would tend to lower the ‘average’ income over time. Thus a price-to-average income metric wouldn’t really make much sense in analyzing the health of the housing market.

Immigration levels have been consistent in the 250,000 range (permanent residents). Please share your methodology for concluding 8% of GTA monthly sales are to newcomers. — Garth

#149 BigD on 05.26.14 at 10:48 am

Garth,

If I have $50,000 in cash, should I max out my TFSA first and put the rest in a Non-registered account to invest?

Or should I max out the RRSP and take the proceeds from the tax deduction and then max out the TFSA?

#150 Bottoms_Up on 05.26.14 at 10:57 am

#74 Old Man on 05.25.14 at 8:47 pm
—————————————
It shouldn’t be about ‘must’ accept, it should be that we are “proud” to accept.

Canadian multiculturalism is the envy and gold standard for the world; we are (and should strive to be) accepting of all, as long as there is respect for fellow citizens, no matter their age, race, religion, gender, socioeconomic status, health etc. or whether they add their dog poop to your garbage pile or take pictures of your house:

http://www.theglobeandmail.com/report-on-business/top-business-stories/judge-scolds-warring-rich-neighbours-for-kindergarten-antics-in-torontos-tony-forest-hill/article18771751/

#151 Nemesis on 05.26.14 at 11:34 am

#MondayMischief #TearDownKids #GalvanicEvangelicals

“It’s like we are modern day nomads, jumping from place to place.” – Emma Law

[Tyee] – Meet Vancouver’s Tear Down Kids: Living in a housing-crisis wracked city? Why not try demolition life?

…”According to data from Statistics Canada, 2,054 single-family detached homes were demolished in Metro Vancouver in 2013, providing plenty of opportunities for young people like Robinson and Law to find cheap rent for a few months.

Of those properties, 518 (25.2 per cent) were located in the City of Vancouver, 430 (20.9 per cent) in Surrey and 304 (14.8 per cent) in Burnaby.”…

http://www.thetyee.ca/News/2014/05/26/Vancouver-Tear-Down-Kids/

[SCMP] – Canada’s ‘ridiculous’ human rights galvanise evangelical Chinese

..”Within Cantonese evangelical circles, [the bill] highlighted for many that ‘Western’ Canadian society’s constitutional fixation on ‘human rights’ was descending into nihilism, bolstering in turn the ideological merits of a universally ‘Chinese’ traditional family system that remained part of a rational sexual majority,” Tse wrote.

http://www.scmp.com/news/world/article/1517364/canadas-ridiculous-human-rights-galvanise-evangelical-chinese

[NoteToGT: For some inexplicable reason, my RhymingDictionary always insists on matching “evangelical” with “testicle”… accordingly, a rewrite on that particular Leader may have to wait.]

#152 eddy on 05.26.14 at 11:43 am

Multiculturalism is a word, nothing more, nothing less, brought to you buy the same folks who brought you:

communism
socialism
Capitalism
Zionism
Nazism
Islamism (a Stephen Harper favorite)
fascism

Our use of the word multiculturalism is however devoid of meaning.

The thing that politicians call multiculturalism is Social
Engineering.

re Eurozone

In Poland, which is not in the Euro currency yet, mortgage rates are (drum roll) 5.7%, almost double that of France.
Count your blessings, and bubbles.

#153 Dupcheck on 05.26.14 at 12:03 pm

Has anyone noticed that the new homes being build are huge? Why does a family of 2 or 3 need a mansion? Why don’t we build smaller homes, smarter, more affordable ones? Is everyone rich now days? The incomes have not changed by much, but the home sizes and prices have doubled. I am tired of seeing people that can not afford that type of home and that type of luxury car and life style showing off. Stop the cheap money, stupid has no limits. This is starting a war between rich that can afford stuff and poor faking it. The middle could be devastated.

#154 Flawed on 05.26.14 at 12:06 pm

#134 Ralph Cramdown on 05.26.14 at 7:30 am
#116 Flawed — “People are “forced” to invest in “risky” so called balanced portfolios because of the way a “handful” of bankers in New York and London have shaped the world.”

Nobody forces you to invest in anything, but putting your money in GICs and then complaining about the returns is like spending every day on the couch and then complaining that your career isn’t advancing.

You set yourself a hurdle rate, be it 7% or whatever, and you say to yourself “self, I’m not going to accept less than that for my money. I’m going to educate myself, and seek out a diverse list of investments which should earn me more.” Even BCE, which used to pay 5.3% just a short while ago now pays less than 5Or you can shop for the highest yielding GICs and get maybe 2.5%. Or go to your local bank and get whatever it’ll pay you. But stop the whining that this has something to do with New York bankers. You are not entitled to a government guaranteed above-inflation return on your money.

***************************

Thanks for the the confirmation that in order to get ahead in the world we live in you are forced to invest in paper stocks thanks to the uncontrollable greed of banks and corporations.

There’s a plethora of excellent, varied and stable investment vehicles in which money can grow, separate form equities. — Garth

#155 Joe on 05.26.14 at 12:12 pm

My question is if the immigration policy is currently closed to certain countries then how are they gaining access to Camada.

Hint: The Persian who owns the business next door says it’s easy to get into Canada it just takes money.

#156 Shawn on 05.26.14 at 12:41 pm

Paper Stocks are Problem?

Flawed said:

Thanks for the the confirmation that in order to get ahead in the world we live in you are forced to invest in paper stocks thanks to the uncontrollable greed of banks and corporations.

***************************************
You don’t like paper stocks. Would you prefer stock certificates written on clay tablets? Paper stocks (which are usually electronic these days are just records of ownership of portions of corporations.

Yes owning corporations is a good way to get ahead. Your choice live on your labor income forever or invest savings in ownership capital of productive corporations.

Lending money to banks is not currently a good way to get ahead. But why do you want to “get ahead”? Are you greedy? Nothing wrong with that but you seem to consider it a vice.

#157 Nemesis on 05.26.14 at 12:50 pm

#Bonus’Zen’ #ThePoliticalEconomyOfPinocchio&Geppetto

[G&M] – Ottawa approved thousands of foreign worker requests at minimum wage, data reveal

…”The federal government approved thousands of requests to bring in temporary foreign workers at minimum wage in recent years, a practice that undermines claims from government and employers that there are serious labour shortages and that all efforts have been taken to hire Canadians.”…

http://www.theglobeandmail.com/news/politics/thousands-of-foreign-workers-at-minimum-wage-approved-data-show/article18839911/

#AuthenticZen

…Time’sRunningOutForPinocchio&Geppetto…

http://youtu.be/YnB2RM3uvSk

#158 Ralph Cramdown on 05.26.14 at 12:53 pm

#154 Flawed — “Thanks for the the confirmation that in order to get ahead in the world we live in you are forced to invest in paper stocks thanks to the uncontrollable greed of banks and corporations.”

“Get ahead” sums up your goal nicely. Of whom? Are they not also trying to “get ahead” of you? When I read about the good old days I thank the fates that I was not born into a village where, if born into a rich family, I could expect to spend 35 of my 45 years staring at the ass end of an ox from sunrise to sundown and, if not to the manor born, doing the work myself and coveting my neighbour’s ox. Progress!

You don’t need to invest. You just need to lower your expectations and consume less than you produce for several decades, then consume little for whatever your retirement is, if any. Books on Eastern philosophy can help with this (the older ones, not the new “To get rich is glorious”/”capitalism with Chinese characteristics” ones).

By the way, I don’t know what you think you’re buying when you “buy” real estate — but it’s actually a piece of paper, a “title deed” representing a bundle of rights and obligations which the Crown will enforce on your behalf if asked. Or at least that’s what you were buying in the old days. Now it’s a scanned image of same, represented by a bunch of ones and zeros living on a hard drive somewhere. The Crown has ultimate ownership of all property, and all fee simple rights escheat to the Crown if you die without heirs. If this sounds feudal, that’s where it comes from.

#159 Dewflicker on 05.26.14 at 12:55 pm

Speak to any realtor in Pt Grey on the west side of Vancouver and he/she will tell you that the $2m+ market is all Chinese (and Pt Grey is almost all close to or over $2m in the detached department). Visit Olympic Village in an evening and note all the lights that never come on. It is not just because Vancouverites are boring (they are) but because these units are owned by offshore investors. I have a regular stream of relators knocking on the door (by this I mean every other week) asking if I am intested in selling and how HAM would pay up for the LOT (not the lovely house which they would immediately bulldoze in favour of the characterless, gargantuan, glowing white elephants with paved gardens that are coming to dominate the once leafy streets here). Race is no barrier to idiocy and stupid caucasians have played their role in this. But in the Big Tofu HAM is a prominent driver of this upward trend.

But read James Surroweiki in the most recent New Yorker. He makes a better case than I do:
http://www.newyorker.com/talk/financial/2014/05/26/140526ta_talk_surowiecki?mbid=social_tablet_f&mobify=0

#160 Banker on 05.26.14 at 1:19 pm

Bank of Canada’s website says mortgage credit growth increased by an annualized rate of 3.7%.

So all those SFD homes being sold above asking are being made with people with suitcases full of cash. Foreigners?

Plus any bid above asking…..the home would fail the appraisal and no financing would be given.

More to this story than what is being discussed here.

#161 Karlhungus on 05.26.14 at 1:36 pm

100,000 people per year are moving to Alberta. Prices in edmonton are $100,000 cheaper then Calgary. No crash in edmonton

#162 Nemesis on 05.26.14 at 1:37 pm

#Tales’OTesticularTriumph #AMemorialDayThinkPieceForTumultuousTimes

[CommonDreams] – Thomas Paine, Our Contemporary – by Chris Hedges

…”The popular press in America dismissed him as “the drunken infidel.” But Paine never veered from the proposition that liberty meant the liberty to speak the truth even if no one wanted to hear it. He died, largely forgotten, a pauper in New York City. Six people went to his funeral. Two of them were black.”

http://www.commondreams.org/view/2014/05/26-2

#163 triplenet on 05.26.14 at 1:50 pm

#53 Len

My question is more general one. When signing a contract for a house, real estate associations are required by law to collect pretty detailed information on the buyer – identity, citizenship status, etc. . Why is it that everyone claims not to know how many properties are sold to non-residents? The provincial governments, but definitely the realestate cartels, know exactly the breakdown of foreign ownership. The information is clearly being collected – how come it is not being released (at least not to us peasants)?

The info goes to the federal agency, FINTRAC, which is concerned with terrorist financing and money laundering, not counting foreigners buying houses. — Garth

The CSIS may share this information with other gov’t agencies if they wish….and why wouldn’t they?

Similarly the Land Titles Offices may/do share ownership transaction records with the CRA.

Privacy laws may very well preclude the dissemination of this type of information to the general public.
Document servers and others who participate in LTO registrations (legal and real estate) do have random access (not formally collated) to this information however it would be cost prohibitive to collect and privacy concerns would still have to be addressed.

So yes, the information is there – but effectively obtaining it is another story.

#164 Joe on 05.26.14 at 1:51 pm

Hi Garth,

I am really confused right now….

I you look at official internet RE propaganda looks like everything is pretty dandy…and even they are warning that savers will miss the boat and will be punished by not buying real estate right now……..

To me everyone looks like in kind of amok state…and if you are not buying you are public enemy and ridiculed…

#165 Mark on 05.26.14 at 1:56 pm

“This statement is extremely flawed. People are “forced” to invest in “risky” so called balanced portfolios”

The “balanced” portfolios that Garth constantly recommends here are a heck of a lot less risky than a ‘savings’ account at your local bank. Such portfolios protect against inflation, deflation, and stagnation. And are not overwhelmingly at the risk of whatever the Bank of Canada decides is in the best interests of monetary policy.

If you look around the world, history is littered with examples of people, in various asset class, placing overwhelming trust in them, and being let down. ZIRP is necessitated because of the exceedingly weak economy and the excess returns earned by lenders relative to investors over the past number of years. In practice, ZIRP just means that a balanced portfolio owner earns a bit less on their interest-bearing stuff, and a bit more on other parts of their portfolio.

#166 Mark on 05.26.14 at 2:00 pm

“$4250/month = $51,000/yr in rental income. If I assume a $1M purchase price, that’s a 5.1% yield (ignoring property taxes). That’s a P/E of about 20, which is high, but not as “off the charts” as it has been. There were many $1M houses renting around $3000-$3500, or a P/E of about 25-30”

Apply, say, a 32% tax rate, and include depreciation, so that P/E becomes well into the 30s. Why bother, when you can buy the TSX at a GAAP P/E in the range of 15?

Even if it is a decent bargain for housing, its a horrible deal compared with other investments.

#167 Here there on 05.26.14 at 2:02 pm

Very touchy picture. How appropriate to real estate. Wonder if there is a chart related to how many canines are forced to live on 600-800 sq. ft. sky boxes. Being taken for a couple of hours a day, to defecate in sidewalks and parks. While their owners mingle with other similar minded humans, perhaps discussing, the vagaries of yoga for canines or the need of one way bike lanes. The picture pull at your heart strings. Similarly to seeing the protests of millionaires athletes covering a team logo with their training jackets. Perhaps such jackets made by oppressed and exploited Bangladeshi women; but I digress. Thanks Garth very educational blog, please carry on.

#168 Level Hed on 05.26.14 at 2:08 pm

One way to level the playing field between HAM and citizen is to ensure that all monies flowing into Canada have been ( or will be taxed upon entry) at the same rate as Canadians pay for the same amounts of accumulated wealth. This way, if the money is ill gotten ( as so much of it has been and laundered into Canada according to most official reports) at least Canada will benefit from the tax revenue from new citizens as well as old. Also . if the money hasn’t been taxed in the same way as Canadians have been then the new comers will have some skin in the game and would have had the same weight of responsibility placed on them to pay for infrastructure and not be recieving the historical benefits of citizenship free of charge for just the cost of a plane ticket into Canada.

The notion that immigrants are crooks is beyond disappointing. — Garth

#169 Italians love real estate on 05.26.14 at 2:11 pm

#136 – Garth’s response to Shawn

” Immigrants who eventually buy are called Canadians”

Oh so let me get this straight. If 250,000 immigrants this year , decide to buy a house next year the argument for immigration affecting our sky high RE prices is no longer valid because afterall they are no Canadians.. LOL

Those are some funny semantics

People who live here get to buy houses. The day they become legal residents they are as Canadian as you. — Garth

#170 Italians love real estate on 05.26.14 at 2:12 pm

Meant “now ” Canadians not ‘no’ in previous post

#171 jess on 05.26.14 at 2:20 pm

foreign buyers meh ….according to this it is crazy white guys with guns!
http://www.dailymail.co.uk/news/article-2638993/Disturbed-white-males-dangerous-people-country-Michael-Moore-speaks-latest-U-S-mass-shooting.html

#172 jess on 05.26.14 at 2:26 pm

163 triplenet

what about straw buyers

http://www.fbi.gov/fbi-search#output=xml_no_dtd&client=google-csbe&cx=004748461833896749646%3Ae41lgwqry7w&cof=FORID%3A10%3BNB%3A1&ie=UTF-8&siteurl=www.fbi.gov%2F&q=straw+buyer+mortgage+scheme

#173 Old Man on 05.26.14 at 2:28 pm

#157 Nemesis – the question remains, who benefits from this act of deception? Caesar and his misfits have an agenda which has been disclosed for years in detail, so what is it? Canada wake up!

#174 Porsche on 05.26.14 at 2:28 pm

2011

Immigration…
One out of 5 people in Canada’s population is foreign-born

Highest proportion of foreign-born in the G8…
Among the G8 countries, Canada had the highest proportion of foreign-born population (20.6%), well above Germany (13.0% in 2010) and the United States (12.9% in 2010).

Asia the largest source of immigrants…
Among all immigrants who arrived, 56.9% came from Asia (including the Middle East).

Imagine how less enriched we would be otherwise. — Garth

#175 jess on 05.26.14 at 2:50 pm

exceptionally egregious ? why the adverb?

Remaining ‘hit list’ banks sweat over US verdicts
The Basel Cantonal Bank plays a huge role in the canton and city

The 13 Swiss banks still under tax evasion scrutiny from the United States Department of Justice (DoJ) have little hope of escaping with a light sentence following the large penalty imposed on Credit Suisse this week. Some relatively big hitters remain on the DoJ hit list. […]

#176 maxx on 05.26.14 at 2:50 pm

“Criticism of Corporate dead money”, hits the msm- again. What did tptb expect? Corporations are where business and money brains reside.

There is NO VALUE in most markets! Not in real estate and certainly not in overvalued stocks. Artificial rates, artificial prices, artificial floors supporting prices and NO decent JOBS….and many of those that exist are offered to tfw.

Can’t blame corporations. Tptb mollycoddled them through the gfc and expected?……………a refund?…love? Tptb should wake up and realize that corporations are NOT your friendy wendy. It’s so pathetic it’s hard to decide whether to laugh or retch.

These smart parties are not spending and won’t any time soon because that would just be pissing good money away.

Many individuals are doing likewise and keeping a hefty reserve to protect themselves against government policy.

#177 jess on 05.26.14 at 3:01 pm

http://business.financialpost.com/2014/05/24/why-canadas-whistleblower-hotlines-are-staying-silent/

#178 Old Man on 05.26.14 at 3:06 pm

#170 maxx – I agree for the most part but will add a codicil which I discovered through research by accident. It starts with the billionaires who invest with the hedge funds under management who in turn directly or indirectly control corporations via a variety of investment vehicles; some involve syndications. I was shocked seeing brand named corporations being controlled by them.

#179 Mark on 05.26.14 at 3:10 pm

“There is NO VALUE in most markets! Not in real estate and certainly not in overvalued stocks”

The TSX, at a dividend yield at roughly 3%, an after-tax earnings yield north of 7%, and P/B significantly below long-term average, is “overvalued”?

Not sure how you came to such a conclusion. The Canadian stock market has almost never been cheaper in my lifetime. The equity risk premium is just waiting to re-assert itself after being in hibernation for the past 30-35 years. Sure beats Canadian residential housing which trades at record P/B, and an insane P/E ratio of 35 or more.

#180 Flawed on 05.26.14 at 3:26 pm

#168 Level Hed on 05.26.14 at 2:08 pm
One way to level the playing field between HAM and citizen is to ensure that all monies flowing into Canada have been ( or will be taxed upon entry) at the same rate as Canadians pay for the same amounts of accumulated wealth. This way, if the money is ill gotten ( as so much of it has been and laundered into Canada according to most official reports) at least Canada will benefit from the tax revenue from new citizens as well as old. Also . if the money hasn’t been taxed in the same way as Canadians have been then the new comers will have some skin in the game and would have had the same weight of responsibility placed on them to pay for infrastructure and not be recieving the historical benefits of citizenship free of charge for just the cost of a plane ticket into Canada.

The notion that immigrants are crooks is beyond disappointing. — Garth

**************************************

Your right Garth it is disappointing. My wife and I have many Asian and Sikh friends in and around the Vancouver Lowermainland and they all tell us the same thing. Crookedness in business, money laundering, family dumping in Canada while husband rakes it in overseas and pays no taxes while we Canadians pay for their extended family who have never paid a cent of tax is very very large. And the Canadian Govt does very little to stop it. Its very disappointing. I don’t hear the same thing from the Anglo friends we have not that our sampling rate is scientific or anything.

#181 Entrepreneur on 05.26.14 at 3:27 pm

#145 David Hawke…”taking advantage of Canadian social services at a higher rate”…I have to agree on the part of taking advantage of Canadian social services as I have seen it in action. People come here from other countries that do not have a social system like ours, especially our health care and EI. People think it is just great receiving money when not working but not in their country. Their boss in also from the same country and lets them rent in the basement. Our health care is also been used with envy.

#182 Flawed on 05.26.14 at 3:32 pm

By the way, I don’t know what you think you’re buying when you “buy” real estate — but it’s actually a piece of paper, a “title deed” representing a bundle of rights and obligations which the Crown will enforce on your behalf if asked. Or at least that’s what you were buying in the old days. Now it’s a scanned image of same, represented by a bunch of ones and zeros living on a hard drive somewhere. The Crown has ultimate ownership of all property, and all fee simple rights escheat to the Crown if you die without heirs. If this sounds feudal, that’s where it comes from

****************************

Yes we can agree on that. Canadian assets are still basically a Crown asset. I wonder what would happen if “all Canadians” knew we still live in a serfdom type country?

Still don’t agree on the “portfolio”thing. Because of greed of corporations and Govt with their gigantic pension and high salary obligations, all western countries are folding up. It is an inevitable conclusion. Had this not been the case with corporations and Govt, regular people would not need this “balanced” portfolio.

#183 Old Man on 05.26.14 at 3:32 pm

Those with a bit of cash all is not lost for a nice Muskoka retreat. I just saw a beautiful listing in Bracebridge by the falls. Its a one bedroom end townhouse with modern all brick construction; inside looks fine; location is good; and the asking is a mere $139,900. Of course it needs a hands on inspection, but the price is right.

#184 Flawed on 05.26.14 at 3:37 pm

You don’t like paper stocks. Would you prefer stock certificates written on clay tablets? Paper stocks (which are usually electronic these days are just records of ownership of portions of corporations.

*********************’

No I would prefer that all we need to do is save money like in the “olden days” but because of Public Sector obligations and greed of corporations to brainwash people to buying the next piece of Chinese made junk, this is impossible so people are “forced” to invest in paper and hire experts to manage money for them. This will end soon. Be patient.

#185 devore on 05.26.14 at 3:45 pm

#147 T.O. Bubble Boy

A couple of points:

#3) It’s asking rent, and it’s been listed for a couple of weeks now. As we’re dangerously close to end of month, it’ll probably go vacant for June, so they will likely lose a month’s rent AND have to reduce the price (either up front or on negotiation by a smart shopper). It’s also a brand new renovated full house (ie not a basement). That will always be a bit more. It cost many thousands to bring up to its current standard, and will require many more after the tenancy ends to have it rent at premium rate.

Asking rents are irrelevant. Anyone can ask whatever rent they like. Craigslist is chock full of places that will never rent at anywhere close to their asking.

#186 CPG on 05.26.14 at 3:55 pm

Walmart Canada cuts 750 jobs after testing new management structure

#187 Seeing it from both sides on 05.26.14 at 3:57 pm

‘dumb Caucasian Canadian’

You mean like these people and many more like them who have cashed out of their gold mines …??

https://ca.finance.yahoo.com/blogs/balance-sheet/baby-boomer-tastes-redesigning-canada-condo-market-150719321.html

#188 Old Man on 05.26.14 at 4:02 pm

Now for those that are still complaining about HAM buying Real Estate and raising prices. Do I hear any complaints from home owners who bought for $500,000 several years ago, and they could sell tomorrow for $1 million? So sell already and pocket the tax free green and rent. You just got a free ride on a bubble.

#189 Mark on 05.26.14 at 4:18 pm

“as so much of it has been and laundered into Canada according to most official reports)”

Money laundering into Canada? “Official Reports”? Please tell us more. Because I haven’t heard of any such thing.

And even if laundered money was a force in the RE market, again, this would contribute to a reduction in overall leverage. Not leverage in RE being off the charts.

#190 Bargains everywhere on 05.26.14 at 5:20 pm

Immigrants who ‘eventually’ buy are called ‘Canadians’. — Garth
____

Fine, but if they’re immigrating with a ton of money it’s not exactly a level playing field compared to a ‘Canadian’ who was born here and has only earned income in ‘Canada’.

So many new ‘Canadians’ have come here through the Immigrant Investor program and the basis of their admission to ‘Canada’ is their money. Who knows it this is good policy or not but what I do know is that the first thing they generally do is buy real estate. To say they don’t have an effect on the market is ludicrous.

#191 bigtown on 05.26.14 at 5:41 pm

SPAIN house prices have crashed over 30% and more in many markets in the last five plus years. The housing boom in Spain started in 2000 and attracted tons of immigrants from the Ukraine and Eastern Europe and Latin America including Mexico and Central and South America and many of them bought homes. The housing boom made everyone feel positive and upbeat about the whole country for a period and the immigrants bought homes never suspecting what is now reality…unemployment at 25% and laws sending them back home if they are lucky and banks in Spain are like Canada in that you are not allowed to walk away from debt. So in Spain if you owe 100,000 euros on your home when the bank repossesses it you owe it until you die like in Canada. So immigrants are no guarantee against economic downturns or housing busts.

#192 Ralph Cramdown on 05.26.14 at 6:04 pm

#189 Mark — “And even if laundered money was a force in the RE market, again, this would contribute to a reduction in overall leverage. Not leverage in RE being off the charts.”

I don’t know that this is true. Banks and CMHC, when they report, only report on properties with mortgages. If a market gets a few percent cash buyers and this drives up prices for other leveraged buyers without significantly increasing their incomes, debt/equity and debt/income ratios for those with mortgages would go up, and the others go uncounted. Income from the sale of a primary residence might not even show up in Statscan’s income accounts, as it isn’t taxable.

I don’t know the exact answers here, but I wouldn’t be at all surprised if the stats worked out as above. And if somebody is a non-resident for tax purposes, his income won’t get counted for debt/income ratios whether he has given a mortgage on Canadian property or not.

Aside from the property tax assessment organizations, nobody’s keeping track of the total value of real estate. Nobody’s breaking it down into mortgaged/unmortgaged properties, save for the occasional bank survey (self reported, unreliable).

#193 Italians love real estate on 05.26.14 at 7:25 pm

#169 Garth responds ” people who live here get to buy houses. The day they become legal residents they are as Canadian as you.”

Well then , according to you, if a quarter million Asians land next year in the country , buy a house and become legal residents they no longer factor into the immigration argument for high housing prices.

Real logical. Seems we keep going ‘ round and round the bush’ here

#194 Tony on 05.26.14 at 7:31 pm

Re: #60 Mark on 05.25.14 at 8:09 pm

XIU will likely fall around 60 to 80 percent over the next couple of years hopefully starting this year. I’m on the opposite side of that trade.

#195 Trojan House on 05.26.14 at 10:21 pm

#8 Crossbordershopper on 05.25.14 at 5:29 pm

That is the funniest comment ever! There are less murders because nobody cares about anyone else. I guess that is why America has so many murders – everyone must be totally in love with one another.

#196 wallflower on 05.26.14 at 11:32 pm

#180 Flawed on 05.26.14 at 3:26 pm
“family dumping”
same thing happens here in Markham

something similar happens with Portuguese (I know this group because married into it) … they maintain “we have investments in Ontario” so that gives them the right to visit here two weeks per year and use the healthcare system … they obtained their OHIP cards years ago … earned a tonne of cash in construction, remitted no taxes, went home and built their homes and “retired” – they even get OAS because they maintain some beachhead here

#197 Dean Mason on 05.26.14 at 11:33 pm

For those that are only comfortable investing their money in GIC’s which only have $1,000 minimums Oaken Financial has 3.05%, 5 year GIC’s, RRSP GIC’s, TFSA GIC’s but 3.05%, 5 year RRIF GIC’s paying monthly interest.

ICICI Bank of Canada has 3.00%, 5 year TFSA GIC’s, RRSP GIC’s as well.

#198 Canuckfilly on 05.27.14 at 1:04 am

Just a general question. A house in our town built in 1997′ , 2000 sq feet per floor cost about 250k. To rent the same house costs about 1200 per month. Still think it’s better to rent than buy? Even if you could find a house to rent here which is almost impossible.

#199 michael schratter on 05.27.14 at 1:23 pm

New Yorker Magazine writes about Vancouver:

http://www.newyorker.com/talk/financial/2014/05/26/140526ta_talk_surowiecki?utm_source=tny

#200 Logical_Practical on 05.27.14 at 3:10 pm

In regards to VANCOUVER.

Yes. housing has inflated Canada Wide because of cheap credit and the real-estate agent created culture

But in Vancouver, and in addition to the above:

Since the late 80’s the foreign impact, first mainly from Hong Kong and now China has dramatically ballooned the price of east van/burnaby/richmond “crack shacks” to 850 000, 1 000 000, 1200 000…..

Without the foreign element, these prices would be more like 350 000 – 650 000.

That is why these passport immigration applicants are gearing to try to sue the CDN Govt for ending this very foolish program. Cutting it now is already too late, but better late than never.

These are the facts, period! The reason is not one or the other, with constant heads butting on this site It is both these reasons as contributing factors…